Another quiet month in the housing market

Housing market activity continued to hit a flat note in March according to REINZ. The 6,938 sales recorded across NZ were almost 13% down on March last year. Seasonally adjusted, every single region experienced a fall in sales activity in March. House price appreciation eased further, coming in at 2.3% yoy the lowest rate seen since September 2011. The housing market is moderating and is likely to continue to for some time to come . Policies that weigh on investor-related activity, such as the likelihood of a capital gains tax, are potentially influencing market activity. But there are supporting factors likely to mitigate the risks of a sharp correction in the market. Supply of affordable housing remains a major issue in a number of regions. The labour market is tight and generating employment, although downside risks are clearly a concern here. In addition, mortgage rates are set to fall further with the RBNZ likely to cut the OCR sooner rather than later – sooner being May in our view.

Auckland led the pack a few years ago when the market was hot, and now it is setting the direction for the rest of the country on the way down. House prices in the City of Sales were almost 3% down on March 2018, and the median number of days to sell at 42 was the highest for a March month since 2001. But the Auckland market is far from the type of freefall being experienced across the ditch in cities such as Sydney and Melbourne. Unlike the major cities of Australia, Auckland continues to suffer from a shortage in housing.

In the regions there were some large falls in sales in March. Wellington experienced a particularly soft March with 809 sales, which was down 10% mom seasonally adjusted. REINZ does point out that the Capital also has the lowest level of inventory in any region (with only 8 weeks), and this is likely to be a key reason for weaker sales activity. House price appreciation eased a touch across several regions. For instance, in Otago annual house price appreciation fell to 9% yoy from 12% yoy in Feb. Taranaki and Southland stood out with a pick-up in house price increases. Annual house price appreciation in these regions were 7.2% yoy and 16.8% yoy respectively.

Policy Implications

From a financial stability perspective, the housing market remains well behaved, and so too is credit growth, since the RBNZ loosened Loan-to-Value Ratio (LVR) restrictions on residential lending at the start of the year. If current trends continue, then the RBNZ is likely to take a close look at macroprudential policy settings and potentially loosening them further. Investor-related lending is particularly soft. Government policy, both enacted and proposed, is likely to be doing some of the job of reigning in credit growth for investors.

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